British housing market activity slowed significantly in August as buyers grappled with the financial fallout of the ongoing conflict in Iran. According to Bank of England figures released Tuesday, mortgage approvals for new home purchases fell to 54,918, marking the lowest monthly total since December 2023 and a 32-month low.
The surge in energy prices linked to the regional instability has pushed borrowing costs higher, dampening summer buying activity. Lending to prospective homeowners dropped by 15% compared to the same month last year. Simultaneously, the effective interest rate on newly issued mortgages rose to 4.60% in August, up from 4.45% the previous month.
Remortgaging activity also cooled, with approvals dipping to approximately 34,000 from 34,600 in July. Market analysts note that this softening in refinancing demand is occurring despite a high volume of borrowers coming to the end of their existing fixed-term deals.
Financial data firm Moneyfacts reported that average mortgage rates have climbed sharply. As of Tuesday, the average five-year fixed rate reached 5.94%, the highest point recorded since October 2023. Meanwhile, two-year fixed mortgages hit 5.93%, their most expensive level since July 2024.
KPMG UK financial services advisor Katie Clinton noted that the shocks from the Iran conflict are elevating both inflation and interest rates, placing persistent pressure on affordability. Furthermore, Capital Economics chief UK economist Paul Dales warned that the likelihood of mortgage rates remaining above 4.5% through most of 2027 will likely carry more weight in the market than the government’s recently announced Your First Home scheme.
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